Developers sweeten deal to get KOZ approval for Adelaide Mills

Developers are sweetening the deal to entice the Allentown School Board and Lehigh County commissioners to approve a Keystone Opportunity Zone (KOZ) designation so they can transform a large old factory into apartments in the city.

The school board is expected to consider the deal when it meets Thursday evening. The county commissioners learned about it Wednesday night, but won’t vote until Aug. 14.

The property is the Adelaide Mills building, which stands along Linden Street, between Race Street and Jordan Creek. The massive U-shaped structure is directly across Race from the Allentown Bus Terminal.

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KOZ properties that are redeveloped do not have to pay any local or state taxes for up to 10 years. That gives developers a major financial incentive to invest in properties that otherwise might remain vacant and deteriorating.

For the Adelaide Mills property to become a KOZ, the city, county and school district must agree to give up all taxes from the property for a decade.

However, developer Borko Milosev is proposing “payment in lieu of taxes” agreements to both Allentown School District and Lehigh County.

He explained he will continue to pay the full real estate taxes the property now pays to ASD and the county during every year of the KOZ, plus an additional 10 percent.

“In this particular case, we lose nothing,” said county Commissioner David Jones. “The county, the taxpayer, loses nothing.”

Because the property is privately owned, it now generates a total of about $28,857 in annual tax revenue for the city, county and school district.

The county collects about $4,268 in annual real estate taxes, with the school district collecting an estimated $18,648, according to figures provided by city officials.

If the county and school district take Milosev’s deal, both will get 110 percent of those amounts each year for the life of the KOZ -- rather than zero.

For the county, that means $4,694 a year in “financial support payments.”

A 110 percent “payment in lieu of taxes” –PILOT – is allowed by the state legislation that created Pennsylvania’s Keystone Opportunity Zone program, said Todd Collins, Allentown’s business development manager.

All three local taxing bodies – the city, school district and county – must approve giving Adelaide Mills a KOZ designation.

Allentown City Council already did that on July 17, without any PILOT agreement.

The city gets $5,941 in annual real estate taxes from the property, but will get nothing for 10 years if the county and school district also approve the KOZ.

“The city has decided this project is important enough that there is no request for a PILOT,” said Collins. “We figured we should be leading the way in regard to this KOZ designation.”

Final KOZ approval comes from the state.

Transformation into an apartment complex?

Formerly the home of Phoenix Clothes, the Adelaide building’s address is 333 Court St.

It has 235,000 square feet of space but is vacant, deteriorated and blighted, according to city officials. Just bringing it up to the city’s code standards will require a significant investment, said Collins, who added the building also is in the Jordan Creek flood plain.

Milosev, who has an agreement to purchase the property, told county commissioners: “The current owners have no intent to do anything with it.”

Milosev’s partner in the project is Samuel Himmelrich, a Baltimore area developer.

They plan to turn 75 percent of the building into apartment units. Milosev said there will be 125-150 apartments. The other 25 percent of the space will be occupied by retail and commercial businesses frequented by the building’s tenants and the neighborhood. Milosev said that could include a grocery, a daycare center and a legal services office.

He said the apartment complex will have elevators, secure entrances, parking and perhaps even a swimming pool.